The EURUSD downward channel appears to be morphing into a range, writes Al Brooks.
The EURUSD currency pair has been trading sideways for six months. It will probably be in a trading range throughout 2020 between around 1.08 and 1.18.
The EURUSD weekly chart has been sideways since early August. Traders are wondering if the two-year bear trend is finally ending.
The bear trend has been in the form of a tight bear channel for 16 months. A bear channel typically has a bull breakout. Then, traders expect the rally to become a bull leg in a developing trading range rather than a new bull trend.
The top of the range is usually around the start of the bear channel. That is the September 2018 high at around 1.18.
Any rally from here will probably be a leg in a trading range. Traders are not expecting a strong bull breakout and strong follow-through buying.
The current three-month rally is a bull leg within a six-month trading range. If the rally continues above the bear trend line, it will probably become a bull leg in a bigger trading range. The next major target is that September 2018 high.
If the EURUSD gets there, the bulls will take profits and the bears will sell again. Traders should expect a leg down from that level. They would then conclude that the two-year selloff was just a bear leg in a trading range and not a bear trend. That trading range would have begun with the selloff from the September 2018 high.
Continued trading range in 2020
This is the most likely scenario over the coming year. Traders should expect a rally to around 1.18 within several months and then several months of sideways to down trading from there. The bears might get one or two more new lows before the rally to 1.18 begins.
Since the EURUSD probably has been in a trading range for 16 months, nothing is clear. Because the range will probably last for most or all of 2020, patterns will continue to be imperfect. Probabilities will be less. Traders will continue to expect reversals every two to three weeks on the up to the September 2018 high, just like they did on the way down.
One final point. There is always an increased chance of a dramatic move in any Forex market at the start of the year. However, because of what I wrote above, a trading range is still most likely for 2020.
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